NCS Multistage(NCSM) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2021, and 2020, along with detailed notes on accounting policies and financial items Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2021, shows a decrease in total assets to $132.3 million from $138.7 million at year-end 2020, primarily due to lower accounts receivable and cash, while total liabilities slightly increased to $26.7 million and total equity decreased to $105.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $77,592 | $83,674 | | Total assets | $132,294 | $138,678 | | Total current liabilities | $15,917 | $14,884 | | Total liabilities | $26,712 | $25,192 | | Total equity | $105,582 | $113,486 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2021, revenues increased significantly to $21.5 million from $8.7 million, leading to a reduced net loss of $5.8 million, while for the six-month period, revenues decreased to $50.0 million from $63.3 million, with the net loss narrowing to $9.2 million from $60.3 million due to a prior-year impairment charge Key Operational Results (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $21,461 | $8,732 | $49,975 | $63,282 | | Loss from operations | $(5,391) | $(14,232) | $(9,043) | $(63,910) | | Net loss attributable to NCS | $(5,795) | $(8,757) | $(9,192) | $(60,306) | | Basic loss per common share | $(2.41) | $(3.70) | $(3.85) | $(25.56) | - The six months ended June 30, 2020, included a significant impairment charge of $50.2 million, which heavily impacted the loss from operations and net loss for that period[11] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash provided by operating activities was $1.1 million, a significant decrease from $20.1 million in the prior-year period, mainly due to unfavorable changes in working capital, with cash and cash equivalents ending the period at $13.9 million Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,090 | $20,148 | | Net cash used in investing activities | $(316) | $(621) | | Net cash (used in) provided by financing activities | $(2,580) | $954 | | Net change in cash and cash equivalents | $(1,646) | $20,016 | | Cash and cash equivalents end of period | $13,899 | $31,259 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures supporting the financial statements, including revenue disaggregation by geography, debt facilities, ongoing patent infringement legal proceedings, and the impact of cost-saving measures Revenue by Geographic Region (in thousands) | Region | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total United States | $9,228 | $4,604 | $17,051 | $25,572 | | Total Canada | $9,194 | $1,500 | $29,429 | $30,866 | | Total Other Countries | $3,039 | $2,628 | $3,495 | $6,844 | | Total revenues | $21,461 | $8,732 | $49,975 | $63,282 | - The company has a $25.0 million Senior Secured Credit Facility maturing in May 2023, with a borrowing base of $10.2 million as of June 30, 2021, and no amount was outstanding under this facility at quarter-end[54] - The company is involved in ongoing patent infringement lawsuits against Kobold Corporation, Nine Energy Service, Inc., and TCO AS, with trials scheduled for early 2022[66][67] - In 2020, the company implemented workforce reductions resulting in $5.7 million in severance costs, with the remaining liability of $0.73 million at year-end 2020 fully paid as of April 2021[74][75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of the COVID-19 pandemic on market conditions, the company's cost-reduction initiatives, and its financial performance and liquidity, providing an outlook for future operations COVID-19 Impacts and Company Response The COVID-19 pandemic significantly reduced crude oil demand and prices, prompting E&P companies to cut capital expenditures, to which NCS responded with extensive cost-saving measures, including workforce reductions and salary cuts, resulting in over $19 million in savings in 2020 - The pandemic led to a significant reduction in global oil demand, causing E&P companies to cut capital expenditure budgets by 30% or more in 2020[92][95] - NCS implemented multiple cost-reduction initiatives, including workforce reductions of approximately 190 people, salary cuts, and deferral of payroll taxes, resulting in over $19 million in savings in 2020[100][101] - Due to the market decline, the company recorded impairment charges of $9.7 million for property and equipment and $40.5 million for identifiable intangible assets in the first quarter of 2020[102] Outlook and Market Conditions Management anticipates modestly higher U.S. drilling and completions activity in 2021 compared to 2020, with a more significant increase expected in Canada, despite continued intense competitive pressure - The company expects drilling and completion activity in the U.S. and Canada in the second half of 2021 to be above the historically low levels of the same period in 2020[106] Average Drilling Rig Count (North America Land) | Quarter Ended | U.S. Land | Canada Land | | :--- | :--- | :--- | | 6/30/2020 | 378 | 23 | | 9/30/2020 | 241 | 46 | | 12/31/2020 | 297 | 88 | | 3/31/2021 | 378 | 144 | | 6/30/2021 | 437 | 71 | Results of Operations In Q2 2021, revenue increased 145.8% year-over-year to $21.5 million, narrowing the net loss to $5.8 million, while for the first six months of 2021, revenue decreased 21.0% to $50.0 million, but the net loss significantly narrowed to $9.2 million from $60.3 million due to prior-year impairment charges Three Months Ended June 30, 2021 vs 2020 (in thousands) | Account | 2021 | 2020 | Variance $ | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $21,461 | $8,732 | $12,729 | 145.8% | | Loss from operations | $(5,391) | $(14,232) | $8,841 | 62.1% | | Net loss attributable to NCS | $(5,795) | $(8,757) | $2,962 | 33.8% | Six Months Ended June 30, 2021 vs 2020 (in thousands) | Account | 2021 | 2020 | Variance $ | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $49,975 | $63,282 | $(13,307) | (21.0)% | | Loss from operations | $(9,043) | $(63,910) | $54,867 | 85.9% | | Net loss attributable to NCS | $(9,192) | $(60,306) | $51,114 | 84.8% | - The decrease in SG&A for the six months ended June 30, 2021 was driven by lower headcount, reduced compensation, a $4.8 million decline in severance charges, and lower share-based compensation[143] Liquidity and Capital Resources The company's primary liquidity sources are cash on hand ($13.9 million at June 30, 2021), operating cash flow, and its Senior Secured Credit Facility, with management believing existing liquidity is sufficient for the next twelve months - As of June 30, 2021, the company had $13.9 million in cash and cash equivalents and $10.2 million available under its Senior Secured Credit Facility borrowing base[151] - Net cash provided by operating activities decreased to $1.1 million for the first six months of 2021 from $20.1 million in the same period of 2020, primarily due to lower net income (adjusted for non-cash items) and unfavorable changes in working capital[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company's exposure to market risk has not materially changed since the end of the previous fiscal year, December 31, 2020 - The company reports no material changes to its market risk exposure since December 31, 2020[176] Item 4. Controls and Procedures Based on an evaluation as of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - Management concluded that as of June 30, 2021, disclosure controls and procedures were effective[177] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[178] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section directs readers to Note 9 of the financial statements for information on legal proceedings, which details ongoing patent infringement lawsuits the company has filed against several competitors - For details on legal proceedings, the report refers to Note 9 of the condensed consolidated financial statements[181] Item 1A. Risk Factors The company notes no material changes to its previously disclosed risk factors, with the exception of adding a new risk related to the use of explosive materials in its business, highlighting potential operational disruptions and adverse financial consequences - A new risk factor was added concerning the inherent dangers of using explosive materials in manufacturing processes and products, which could lead to operational disruptions, injuries, property damage, and potential loss of licenses[182] Item 6. Exhibits This section provides a list of all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO as required by the Sarbanes-Oxley Act, as well as interactive data files (XBRL) - The exhibits filed with the report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, along with XBRL data files[183]